In re Nuijten: The applicant has filed a petition for certiorari to overturn the Federal Circuit’s decision that a man made signal is not patentable. Professor Duffy filed a ‘law professor’ amicus supporting the position which I signed. We argue that the CAFCs Nuijten decision improperly creates a new subject matter exclusion of transitory inventions that cannot be perceived without special equipment. The AIPLA also filed a brief asking the Supreme Court to hear the case. [Law Professor Brief][AiplaNuijten (119 KB)]. Judge Linn’s dissent in the Nuijten decision may well serve as an additional amicus.

Biomedical Patent Management v. California: This case challenges California’s claims to 11th Amendment Soveriegnty based in part on the state’s increased involvement in the business of patenting and commercialization. The Supreme Court is awaiting views from the US Solicitor General on whether the US recommends grant of certiorari.

Translogic v. Dudas: In this case, Translogic asks the Supreme Court to invalidate a BPAI opinion based on the unconstitutional appointment of BPAI judges. In a recent study, I showed that 83% of recent BPAI decisions included at least one judge appointed by the PTO Director rather than the constitutional required “head of department.” Translogic has several procedural hurdles.

Calmar v. Arminak: The design patent holder asked the Supreme Court to reverse the Federal Circuit’s application of the “ordinary observer” test that improperly excludes the most natural ordinary observer – a retail customer. On June 9, the Supreme Court Denied certiorari.

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There continues to be interest in the BPAI appointments problem identified by Professor John Duffy. The solution going forward is quite simple — change the law so that BPAI administrative patent judges will be appointed by the Secretary of Commerce then re-appoint the current judges. No one is arguing that the BPAI judges are incompetent or lack qualifications for their position — only that they have been appointed in a way that runs contrary to the Constitution. This issue may not come to a head until demanded by a court of law. The Translogic petition for certiorari is one avenue, although many more will follow until a clear resolution is reached.

In 2000, the BPAI judge appointment law changed to require the PTO director to appoint the administrative patent judges rather than the Secretary of Commerce. Through a FOIA request, Wendy Gombert and Joel Ard from the Black Lowe firm recently obtained a listing of the 47 BPAI judges who have been appointed since the law was amended. [THE LIST].

To get some sense of the impact of these judges, I looked at the 2500+ BPAI decisions between March 2007 and March 2008 and found most of those decisions (83%) included at least one panel member that had been illegally appointed under the Duffy construction. A significant number of panels (44%) included a majority of illegally appointed judges, and about half of the opinions were authored by illegally appointed judges. By technology center, applications classified in TC1700 (Chemical and Material Engineering) had the fewest opinions drafted by the illegal appointees while TC1600 (Biochemistry and Organic Chemistry) had the most. This difference is likely primarily due to the core group of veteran TC1700 judges.

Justice Thomas delivered the Supreme Court’s 19–page unanimous decision that provides some new life to the doctrine of patent exhaustion. The opinion reverses the Federal Circuit and holds that under the exhaustion doctrine applies to the authorized sale of components that “substantially embody” a process patent. Here, Intel’s authorized sale of chip components to Quanta exhausted LGE’s patent rights.

Buried in this statement are two important holdings: (1) method claims can be subject to exhaustion and (2) sales of products that that do not fully practice the invention can still trigger exhaustion when the products include essential features of the patent and the “reasonable and intended use” of the product is to practice to patent.

In coming to its conclusions, the court reiterated its longstanding rule that “the right to vend is exhausted by a single, unconditional sale, the article sold being thereby carried outside the monopoly of the patent law and rendered free of every restriction which the vendor may attempt to put upon it.” Motion Picture Patents, 243 U. S. 502 (1917). The Motion Picture decision is more nuanced than the even older statement from Adams, which the opinion also quotes approvingly: “[W]hen a patented item is ‘once lawfully made and sold, there is no restriction on [its] use to be implied for the benefit of the patentee.’” Quoting Adams v. Burke (1873).

Contractual Limits: Although the defendant won in this case, the Supreme Court gave some glimmer of hope to those hoping to limit the scope of patent exhaustion through specific licensing terms. In this case, the court found that the LGE-Intel license did not limit the scope of what Intel could sell. Rather, the contract “broadly permits Intel to ‘make, use, [or] sell’” the invention. Under that interpretation of the contract, LGE’s patent rights over a particular component are extinguished as soon as that component is sold – regardless of whether the license included post-sale restrictions.

“LGE points out that the License Agreement specifically disclaimed any license to third parties to practice the patents by combining licensed products with other components. But the question whether third parties received implied licenses is irrelevant because Quanta asserts its right to practice the patents based not on implied license but on exhaustion. And exhaustion turns only on Intel’s own license to sell products practicing the LGE Patents.”

The practical impact is that the patentee has direct power through only the first level of the production/marketing process and forces the patentee to rely on contract rather than patent rules. This shift is less preferred by patentees because (1) contract law requires agreement and privity and (2) patent law typically results in stronger relief than contracts (despite eBay). Because there is usually a lack of privity with downstream users, and the manufacturer is unlikely to agree to be liable for improper downstream uses, it appears that a patentee will now have even more difficulty controling downstream users and purchasers.

Authorized: Despite the broad language of Adam v. Burke, the Supreme Court appears to have conceded that a license may include some restrictions. Interestingly, the court indicated, the sale might not have been authorized if sale had been done in a way that breached the contract between Intel and LGE.

“No conditions limited Intel’s authority to sell products substantially embodying the patents. Because Intel was authorized to sell its products to Quanta, the doctrine of patent exhaustion prevents LGE from further asserting its patent rights with respect to the patents substantially embodied by those products”

In Footnote 7, the court limited its holding to patent exhaustion — and expressing “no opinion on whether contract damages might be available even though exhaustion operates to eliminate patent damages.” This means that violation of use restrictions associated with an authorized sale will not constitute patent infringement. However, it may still constitute a breach of contract. The case says little to nothing about the growing tendency of providing products as a service rather than through the sale of goods. Those offering the service believe that their business structure moves the deal outside of the “first sale” doctrine because the products are transferred via a license & service agreement rather than the sale of goods.

Notes:

“The sale of a device that practices patent A does not, by virtue of practicing patent A, exhaust patent B. But if the device practices patent A while substantially embodying patent B, its relationship to patent A does not prevent exhaustion of patent B.”

States generally support strong patent rights. Why? Because States are free to enforce their patent rights yet are generally immune from suit for infringing patents owned by others.

The Eleventh Amendment – ratified in 1795 – provides immunity to State governments from suits by “Citizens of another State … [or] any Foreign State.” The US Supreme Court has expanded the literal reading of the amendment — holding that state immunity broadly extends to almost all lawsuits brought against a state.

A State may, of course, waive its immunity. A classic example of waiver occurs when a state files a patent infringement lawsuit. After filing the lawsuit, the State cannot claim immunity against related counterclaims filed by a defendant.

The facts of this case are quite simple: Healthcare Giant Kaiser filed a declaratory judgment action against the patent holder BPMC back in 1997. The State of California intervened in that case in support of Kaiser’s position. The DJ action was eventually dismissed for improper venue. Almost a decade later, BPMC filed an identical (mirror image) infringement action against the State asserting the identical patent and issues and in the same venue as the 1997 action.

The issue then is whether California’s original waiver of immunity also applies to this second – seemingly identical case.

On appeal, the CAFC narrowly construed California’s waiver of immunity to be limited to only the same action. The court noted precedent that the waiver would apply if BPMC had been able to file its case as a revival of the original action an “numbered as that cause of action.”

The appellate panel also rejected BPMC’s argument that the DOH should be judicially estopped from changing its position in this litigation. According to the court, the about-face was excusable because of an intervening change in the law of immunity. In particular, during the interim, the Supreme Court decided Florida Prepaid. That case held that Congress could not legislatively eliminate a State’s sovereign immunity from patent infringement claims without showing cause under the 14th amendment.

In its petition for certiorari, BPMC focuses on the issue of waiver due to litigation conduct. The patentee argues that its case is particularly special — because of past waiver in the same transaction. In addition, however, the patentee argues that some states – such as California – have become such major market participants in patent litigation that it would be unjust to allow immunity to continue:

California’s effort to invoke sovereign immunity selectively in this case is part of a larger scheme to use the federal courts as both a sword and a shield. California embraces federal patent jurisdiction when it seeks to benefit but avoids that jurisdiction when it faces liability. Through its frequent voluntary invocation of federal patent jurisdiction, however, California has unambiguously demonstrated that it is generally amenable to federal jurisdiction in these matters and has thereby waived its Eleventh Amendment immunity.

Although not likely, BPMC has a better than average chance at certiorari. It is a fundamental constitutional question with a circuit split and changed business circumstances (States are now major patent players). Another plus is that noted Supreme Court specialist Andy Pincus is on the brief and would likely argue for BPMC.

Interestingly, BPMC’s claims are quite similar to those in the LabCorp v. Metabolite debacle. Here, we have a method of diagnosing placental disfunction by comparing a pregnant woman’s HCG levels against normal levels. Justice Breyer may want to hear this case to take another shot at medical methods.

The Korean chaebol LG licensed a set of patents to Intel. The license expressly excludes Intel's customers and similarly does not cover any customer product made by combining an Intel product with a non-Intel product.

When LG sued a host of Intel chip-based computer manufacturers for infringement, they complained of attempted double-dipping. According to the defendants (including Quanta), their use of licensed Intel chips implicated the first sale doctrine of patent exhaustion.

Question presented: “Whether the Federal Circuit erred by holding, in conflict with decisions of this Court and other courts of appeals, that respondent’s patent rights were not exhausted by its license agreement with Intel Corporation, and Intel’s subsequent sale of products under the license to petitioners.”

Exhaustion – also known as the first sale doctrine – serves as a default rule in both patent and copyright laws. Under the principle, a license fee is only be charged one time per object. Thus, a rights holder controls the first sale of a protected object, but does not control subsequent sales. The copyright rule is codified in Section 109. The patent rule, however, is only based on case law.

Lower Court Ruling: The lower court found that Intel’s "unrestricted" license and Intel's sale of its chips under the license exhausted LG's rights to any additional patent recovery.

CAFC Ruling: On appeal, the Court of Appeals for the Federal Circuit (CAFC) reversed, finding that when restrictions are placed on a license, "it is more reasonable to infer that the parties negotiated a price that reflects only the value of the ‘use’ rights conferred by the patentee." The appellate panel found that there was no exhaustion because of express conditions on the use of Intel's licensed products -- specifically that the products could not be combined with non-Intel parts.

Quanta's argument is quite simple:

Intel sold chipsets to the petitioners;

Those sales were fully authorized under the LG license and were made without restriction;

Therefore, LG's patent rights are exhausted.

Quanta goes on to say that under Supreme Court jurisprudence, a sale cannot be conditional. (No improper restraints on alienation). And, without citing Arizona Cartridge, the petition lists a set of upcoming problems if conditions for sale are allowed for patented items:

[T]he Federal Circuit's new jurisprudence threatens to kick off a new era of "notices" attached to sold goods. Obvious candidates include "single use only," "no use outside of Massachusetts," "no repair," "no resale," or "no resale for less than the price of purchase."

On the other side, LG points-out that Intel made a business decision not to cover its customers. Because of that decision, Intel received a cheaper license, but now the customers must make-up the difference.

[When there are no patent misuse or notice concerns,] parceling out of the exclusivity rights is simply a matter for negotiation in the marketplace, not for a legal override of commercially fashioned terms.

An amicus on behalf of Dell, HP and others identifies the origin of the current CAFC precedent: Mallinckrodt.

Mallinckrodt held that a restriction on the post-sale use and enjoyment of a patented article is enforceable under the patent laws as long as it does not “venture[] beyond the patent grant and into behavior having an anticompetitive effect not justifiable under the rule of reason.”

According to the Amicus (and Quanta), the Mallinckrodt decision and its progeny do not follow Supreme Court precedent as stated in Univis Lens.

Univis Lens ... held that the authorized sale of an article manufactured “under the patent” exhausts all patent claims in the article regardless of any purported limitation on the subsequent use and enjoyment of the article. . . Univis Lens held that a condition on the post-sale use and enjoyment of a patented device violated the antitrust laws because it was not enforce-able under the patent laws, and thus was not protected against antitrust scrutiny. See 316 U.S. at 252 (“[t]he price fixing features of appellees’ licensing system, which are not within the protection of the patent law, violate the Sherman Act”).United States v. Univis Lens Co., 316 U.S. 241 (1942)

Notes

It turns out that the patents were originally issued to Wang Labs and are indeed quite broad. U.S. Patent Nos. 4,918,645; 5,077,733; 4,939,641; 5,379,379; and 5,892,509

Mallinckrodt, Inc. v. Medipart, Inc., 976 F.2d 700 (Fed. Cir. 1992)

Jazz Photo v. ITC, 264 F.3d 1094 (Fed. Cir. 2001), cert. denied, 536 U.S. 950 (2002)("United States patent rights are not exhausted by products of foreign provenance. To invoke the protection of the first sale doctrine, the authorized first sale must have occurred under the United States patent.").

Well, we have gotten early indications from the major patent players as to how the substantive part of KSR will play out. TSM still has a place in the post-KSR world, at least according to Chief Judge Michel of the Federal Circuit and Deputy Commissioner Focarino of the USPTO. These are preliminary statements. We will not know what the Federal Circuit or USPTO really think until the first precedential opinion or interim guidelines issue. But these early comments make one wonder if KSR changes anything, particularly those like myself who witnessed the Federal Circuit's acceptance of, and reliance on, implicit TSM well before In re Kahn, DyStar, and Alza.

While the substantive impact may turn out to be minimal, KSR could have a significant procedural effect. The Court appears to have shifted the line between factual and legal parts of the nonobviousness analysis, moving what was (is?) the TSM test from being a question of fact to a question of law.

The Supreme Court in Graham established that nonobviousness was ultimately a question of law, but there were recognized underlying factual issues—content of the prior art, scope of the claims, and the level of the PHOSITA. When the CCPA, and then the Federal Circuit, started employing the TSM test, the test became another underlying factual component of the inquiry. As a result, there was not much left at the question of law level, and the Federal Circuit affirmed most appeals from rejections by the USPTO and or trials before district courts on the nonobviousness issue.

The Court in KSR introduces a procedural change, folding the TSM-like inquiry into the question of law level of the analysis. This move is most clearly witnessed in Part IV of the opinion, where Court rejects the existence of a dispute over an issue of material fact. Slip op. at 23. The Court goes out of its way to note that "[t]he ultimate judgment of obviousness is a legal determination," rejects the ability of a "conclusory affidavit[s] addressing the question of nonobviousness" to create a fact issue, and shows concern only to whether the first three Graham factors are "in material dispute." Id. In contrast, the final step, determining whether a PHOSITA would modify the prior art, is identified as a "legal question." Slip op. at 21. The earlier, general discussion of the substantive standard also supports this interpretation. The opinion focuses on what "a court" should analyze when determining whether there is "an apparent reason to combine." Slip op. at 14.

The implications of this procedural change are many. Making the TSM-like analysis a question of law facilitates more summary judgments on the issue of nonobviousness (although not as much as one would think, as I determined here). It also gives the Federal Circuit more freedom to reverse both USPTO and district court judgments on nonobviousness. This may lead us down a similar road as Markman has, giving the Federal Circuit so much flexibility that it injects even greater uncertainty into an area that is inherently uncertain, particularly after KSR. We might even end up with KSR hearings.

Admittedly, the Court does not explicitly say it is making this change. And, as the Federal Circuit has done in the past, TSM-like discussions can be framed as part of one of the first three Graham factors that have always been factual issues. However, the main focus of the opinion is on the Federal Circuit's "application" of § 103, and the language and application in KSR strongly suggest a change in the law/fact line in nonobviousness analysis (or maybe this is all just a "common sense" reading).

Part of the legacy of KSR will depend upon how the case is treated by the Federal Circuit (CAFC). Graham v. John Deere is the seminal patent case on obviousness, and is cited by most patent decisions involving the question of obviousness. Cases like Sakraida and Anderson's Black-Rock are much less likely to be relied-on. Sakraida, for instance, is fifty-times (50x) less likely to be cited by the CAFC than Graham -- even though Sakraida represented (until 2007) the Supreme Court's most recent pronouncement on obviousness. Sakraida's low-level influence has waned in recent times. For instance, the cow-dung case has only been cited once by the CAFC in the past decade. (in DyStar).

The table above shows the number of Shepard's citations found for the Supreme Court's set of obviousness decisions. Total citations include all known citations while "total court" citations include only instances where the case was cited in a court opinion. The No. 2 case (in CAFC citations) is US v. Adams. That case is notorious as the only nonobviousness case -- i.e., were the Supreme Court found the claims nonobvious.

The KSR Opinion has much more meat than Sakraida, but the case will never challenge the canonical status of Graham v. John Deere. Of course, the question of KSR's legacy is now in the hands of the CAFC.

In a unanimous decision, the Supreme Court rejected any notion that the concept of obviousness in patent law can be rigidly or narrowly defined -- holding that "the obviousness analysis cannot be confined by a formalistic conception." However, the opinion does not radically change the notion of obviousness or immediately invalidate a wide swath of already issued patents.

The question of nonobviousness comes-up in Section 103 of the Patent Act. That section declares that a patent shall not issue if "the differences between the subject matter sought to be patented and the prior art are such that the subject matter as a whole would have been obvious at the time the invention was made to a person having ordinary skill in the art to which said subject matter pertains."

But what is "obvious"? Certainly, this amorphous term has continuously stumped engineers and scientists for the past 50+ years. One particular issue involves combination inventions that take various existing elements and combine them in a new way. When is such a combination obvious? In an attempt to provide improved notice and regularity, the Court of Appeals for the Federal Circuit (CAFC) introduced a test that holds a combination invention is nonobvious absent some teaching, suggestion, or motivation (TSM) to combine the various parts together.

In KSR, the Supreme Court began by rejecting the CAFC's test for obviousness:

"We begin by rejecting the rigid approach of the Court of Appeals. Throughout this Court's engagement with the question of obviousness, our cases have set forth an expansive and flexible approach inconsistent with the way the Court of Appeals applied its TSM test here."

At this point, I would have expected the Court to obliterate the past twenty-five years of obviousness jurisprudence and begin again with a clean slate. It did not do that — rather, the opinion appears to simply refine the particulars of how prior-art can be combined and when a "combined patent" will be seen as obvious. Without explicitly saying so, the Court's opinion appears to affirm the CAFC's more recent pronouncements of a flexible test of obviousness. Dystar, Alza.

Patent Value: In the short-term, this case reduces the average value of patent holdings. Courts should find it easier to invalidate patents based on expert testimony and the jury's concept of obviousness. The story also becomes more important -- and attorneys who can tell an "invention story" will be in demand. During prosecution, inventors and experts should get their pens ready to sign declarations of patentability.

Preliminary Gems:

PHOSITA is Creative: A person of ordinary skill is also a person of ordinary creativity, not an automaton.

Obvious to Try: When there is a design need or market pressure to solve a problem and there are a finite number of identified, predictable solutions, a person of ordinary skill has good reason to pursue the known options within his or her technical grasp. If this leads to the anticipated success, it is likely the product not of innovation but of ordinary skill and common sense.

Hindsight Bias: Rigid preventative rules that deny factfinders recourse to common sense, however, are neither necessary under our case law nor consistent with it.

No Presumption of Validity: We need not reach the question whether the failure to disclose Asano during the prosecution of Engelgau voids the presumption of validity given to issued patents, for claim 4 is obvious despite the presumption.

Patents Halt Innovation: Granting patent protection to advances that would occur in the ordinary course without real innovation retards progress and may, in the case of patents combining previously known elements, deprive prior inventions of their value or utility.

KSR v. Teleflex, 550 U. S. ____ (2007):In a unanimous opinion authored by Justice Kennedy, the Supreme Court held that the Federal Circuit's "narrow" & "rigid" TSM test is not the proper application of the nonobviousness doctrine of Section 103(a) of the Patent Act.

"To facilitate review, [the obviousness] analysis should be made explicit. But it need not seek out precise teachings directed to the challenged claim's specific subject matter, for a court can consider the inferences and creative steps a person of ordinary skill in the art would employ."

"A patent composed of several elements is not proved obvious merely by demonstrating that each element was, independently, known in the prior art."

"There is no necessary inconsistency between the [TSM] test and the Graham analysis. But a court errs where, as here, it transforms general principle into a rigid rule limiting the obviousness inquiry."

Microsoft v. AT&T: With a 7-1 majority, the Supreme Court has ruled in favor of Microsoft in its extended fight againt extraterritorial application of US Patent Law -- holding that Section 271(f) of the Patent Act does not extend to cover foreign duplication of software. Justice Stevens dissented.

When no less an authority than Hal Wegner of Foley and Lardner starts worrying about the current direction of the Supreme Court on patent issues, it’s time to sit up and take notice. I have heard some of these concerns in the past few years, especially in the wake of the eBay injunction case. But when Hal sent around his widely-read “top 10 cases” email recently, I could see that his outlook had taken a serious turn for the worse. Here are some quotes from the recent Wegnerian missive:

“eBay philosophically piggybacks off an anti-exclusionary right climate in the electronics/software/manufacturing industries that has had a constant, anti-patent drumbeat in the academic and business communities and in the mainstream press. The Court has listened. . . .

[A] decidedly anti-patent core nucleus from the Douglas era is reforming at the Court that - save for Justice Stevens - had disappeared in the wake of the 1980 Chakrabarty and 1981 Diehr decisions . . . .

I believe this is a fairly mainstream view, at least among some chem/biotech/pharma practitioners. And despite how much Hal knows about all things patent (things he has generously shared with me and other academics over the years), I have to disagree with his assessment. Even more, though, I am worried about the larger implications of these views. The wedge between the pharma/biotech/manufacturing and the software/electronics views of the patent world is on one level just a normal development in a vibrant and growing field. But beyond a certain point, it is not a good sign. This is especially true when it is combined with the view that the current Supreme Court is anti-patent. Taken together, this attitude reminds me of the bad old days, the days whose shadow we in this field have only recently emerged from: the days when patent lawyers huddled together, defensively, while a hostile world seemingly bent on the destruction of this area of law (and these incentives for inventors) lobbed random attacks their way.

I think this period, which the field survived (some would say, just barely), casts a long shadow over today’s developments. But in my view at least, there is much more sunlight today than in the bad old days of the Douglas-Black anti-patent jihad. We have not seen, in any of the Court’s recent opinions, discussion of patents as “monopolies,” along the lines of Justice Douglas’ concurrence in Great Atlantic & Pacific Tea Co. v. Supermarket Equipment Corporation: “Every patent is the grant of a privilege of exacting tolls from the public. The Framers plainly did not want those monopolies freely granted.” Compare this with a statement from the unanimous opinion in one of the “new wave” of Supreme Court patent cases, the Festo case from 2002:

Each time the Court has considered the doctrine [of equivalents], it has acknowledged this uncertainty [over effective claim scope] as the price of ensuring the appropriate incentives for innovation, and it has affirmed the doctrine over dissents that urged a more certain rule.

In my view, it makes no sense to equate Douglas’ fifty year old dictum in a concurrence with this recent statement from a unanimous Court opinion. To reiterate: the recent statement of binding law talks of preserving “incentives for innovation,” and not hunting down spurious monopolies.

If there is an “Exhibit A” in Hal’s alarmist argument, it is the recent eBay opinion. Indeed, eBay seems to be the driving force behind most of the anxiety over the current direction of the Supreme Court. On one level, this is perplexing; after all, an opinion extolling “traditional principles of equity – the heart of the Court’s holding in eBay – hardly seems like a radical, “anti-property” legal ruling. But I think that the concerns Hal expresses have a deeper cause: the divergence in interests, and growing split, between pharma/biotech and electronics/software industries. I will return to this theme momentarily. But first, a few words about the post eBay environment are in order.

Recent cases show that for the most part the fears of the patent bar in the immediate aftermath of eBay are not being realized. (Joe Scott Miller's running web page tally of post-eBay cases shows this. As Professor Miller’s data show, district courts have granted plenty of preliminary and permanent injunctions following eBay. Injunctions have been denied in cases weak on the merits, which of course is nothing new; and in a few cases where patents provide disproportionate leverage or are asserted by entities that do not contribute in any appreciable way to innovation: exactly the result intended in the eBay opinion, in my view. And note to Hal: since pharma/biotech firms are real innovators, they have nothing to fear from eBay.) For the most part, people in the patent world recognize this: how can one rationally complain about the continued increase in patent applications while arguing that eBay has significantly undermined the value of all patents? If that latter argument were true, application volume would be dropping, not rising. The opinions in Warner-Jenkinson and Festo, other opinions, and even the remarks about the need not to upset the apple-cart in the oral argument in KSR show a concern with balance that belies a wild-eyed anti-patent bias.

My reading of the evidence – including eBay and its aftermath – is that this is a pro-business Court. I think the Supreme Court has created, overall, a very moderate body of patent law in recent years. (Examples: taking claim construction from juries; preserving the doctrine of equivalents, first from a frontal attack, and then by preventing prosecution history estoppel from swallowing it; trying to draw a reasonable line in the on-sale bar area; etc.) It has absolutely not shown itself to be systematically “anti-patent.” What it has done is to try to keep order and balance in a fast-paced field, weighing the interests of various branches of industry and various users of the patent system. This is, by all assessments, a pro-business Court. It would be shocking if the Court had deviated from this baseline commitment in one important branch of business cases, those involving patents. In my view, it has not.

The Supreme Court’s Real Concern: The Federal Circuit

Later in his letter, Hal has this to say:

[T]he passage of a generation and an open and some would say deserved hostility of the academic community toward the Federal Circuit has transformed this Court of Appeals into just that, an intermediate appellate court where the Supreme Court now pays perhaps closer attention to its jurisprudence than any regional circuit, except possibly the Ninth Circuit.

Here Hal is onto something significant. The real target of the Supreme Court’s caselaw seems to be, not the patent system generally, but the jurisprudence of the Federal Circuit. It is crucial to keep this in mind: whatever one thinks of the Federal Circuit, or of how much its caselaw needs “correcting,” targeting that Circuit is not the same as targeting patents or patent law generally. This is a vital distinction between the “bad old days” of the Douglas/Black era and today.

The Federal Circuit may well be the “new Ninth Circuit.” Despite the Federal Circuit’s overall success in stabilizing patent law, and setting it on a more coherent course, in my opinion the legal rulings of that Circuit often cause unnecessary confusion. Vacillation and variation are well-recognized in a number of important areas: claim construction, the “written description” requirement, means-plus-function claims, inherency, and product-by-process claims, just to name a few. There may be good reasons for some of this variation. They may be structural, having to do with the difficulty of the subject matter, or the absence of competing ideas and different perspectives caused by being the only appellate court in the area. (For some original analysis of these issues, and a sure-to-be-provocative proposal, see Craig Alan Nard and John Duffy’s recent working paper calling for patent issues to be spread among two or more appellate circuits: “Rethinking Patent Law's Uniformity Principle.”) Perhaps the Federal Circuit’s problems are more idiosyncratic, having to do with the composition or workings of this particular group of judges. Whatever the cause, the Supreme Court, in stepping up the scrutiny on that Circuit, is just doing its job of supervising and tending the overall functioning of the federal court system.

So in my view it makes no sense to criticize the Supreme Court, which is trying to steer the Federal Circuit in the right direction. It is especially perplexing to hear some of the same voices complain about the Supreme Court as also complain about the variations in Federal Circuit cases. These dual complaints (“the Federal Circuit needs a lot of work” and “The Supreme Court is anti-patent”) make the patent community sound incredibly negative. It reminds me of the old Woody Allen joke about the food at summer camp: “The food was awful. And the portions were small too.” The Supreme Court is the only force actively working to steer the Federal Circuit onto a reasonable course. For those of us who believe patent law is an important and worthy field of law, we ought to be grateful for the attention.

To summarize: I believe the Court looks at patent cases from a centrist, inclusive, business-oriented perspective, which is a far cry from saying they are anti-patent. Criticism of individual patents, as in the KSR oral argument, or the dissent from the dismissal of certiorari in Metabolite does not in my mind reveal an underlying anti-patent bias. It does reveal a concern with the quality of some individual patents – which is a different concern.

But of course, in this the Court is not alone. Although it is tempting to say that those who are “anti-bad patents” are really in some sense “anti-patent,” I would disagree. As this is the core of the contentious divergence between pharma and electronics mentioned earlier, I turn to that issue now.

Looking at the Bigger Picture: When Molecules and Electrons Collide

It is no secret that the pharmaceutical and biotechnology industries have very different interests than those of electronics and software. Pharma products are typically covered by one or at most a handful of patents; the “billion dollar molecule” means that in pharma, there is such a thing as “the billion dollar patent.” Not so in electronics and software. Hundreds or thousands of patents may read on individual features of a complex microprocessor, consumer electronics device, or software product.

Because the Supreme Court’s cases have in recent years tried to strike a balance between various aspects of the patent system, they have of necessity waded into this area of contention. In many ways, concerns about the Supreme Court are really only part of a larger set of concerns on the part of pharma/biotech. The people who make their livelihood from these industries appear to me to be worried that the newfound efforts at “balance” are coming directly at their expense – that whatever balance the system as a whole may be gaining is coming at the cost of certainty and stability in their core areas of concern.

I want to make two points about that. First, I do not think that this is a “zero sum game.” I think the patent system can be tweaked and adjusted so as to address the concerns of the electronic/software industries, without undermining the economic position of pharma/biotech to any appreciable extent. Second, I believe that this “us against them” mentality could have some serious negative consequences. (This mentality is on prominent display in a recent brief filed by Eli Lilly in the Microsoft v. AT&T case in the Supreme Court – a frontal assault on the patentability of software, by a large pharmaceutical firm. Fortunately, it is unlikely the Court will take much notice, since the case centers on a discrete section of the Patent Act relating to infringing exports, and has nothing whatsoever to do with Section 101 issues.) Whatever the strains of bringing disparate industries under “one big patent tent,” based on what we know now they are worth it, compared to the alternative.

On the first point: despite real friction in recent years, I believe both sets of industries can be accommodated in a reasonable patent system. The key point is for the pharma/biotech industries to recognize that the software and electronics industries are not anti-patent, they are anti-bad patent. There is a world of difference between these two. (If you don’t believe that, look in on the debates between rabid open source and “free software” advocates and those trying to defend the value of patents in the software and other industries. It is maddening for software industry people that they are attacked as club-wielding monopolists by those who attack patents from within the software industry, and then accused by pharma of being latter-day acolytes of the Douglas/Black anti-patent school!)

On the other side, those in the electronics/software industries need to put themselves in the shoes of pharma/biotech. As carefully as “patent trolls” strategize to acquire patents that aim directly at the Achilles heels of an electronic or software product, so do generic drug companies take aim at the patents of pharma/biotech. Any tool designed to “weed out” weak patents from the hands of trolls can and will be turned around and used against pharma/biotech patents, by generic drug firms only too happy to swoop in after all the hard (and expensive!) work is done and cash in on a pharmaceutical product or therapy. And unlike in the electronics/software industries, this cut-throat competitive game goes on in pharma/biotech in an industry that comes under intense public scrutiny concerning drug pricing, marketing and safety. Sometimes it seems as if the press and other observers are doing their best to turn Big Pharma into the next tobacco or asbestos industry – ironic when you realize that pharma/biotech is at heart all about saving and extending lives, not endangering them. Against this backdrop, it is easy to see why the pharma/biotech industries are concerned. Patent law is one of the last bastions against a fairly hostile onslaught. Of course they are worried about any weakening along this front.

One “solution” that might seem commonsensical is to split the patent system. Although it is tempting to do so, to “send the combatants to opposite corners of the ring,” in my mind we don’t yet know enough about how this would work to advocate it seriously. There are too many open questions: would the patent office issue two separate types of patents? How would the borderline between them be policed? Would they be enforced differently? What standards of validity and infringement would apply to each? And on and on. These issues will have to be studied very carefully before one can confidently advocate a truly split patent system. Maybe something along these lines will make sense someday. In the meantime, piecemeal, careful reform of individual patent doctrines and procedures seems a far more sensible course.

Because of this uncertainty, it seems to me divisive and dangerous for pharma/biotech to alienate potential allies. The electronics and software industries are after all huge players in the economy, and they have earned a substantial place at the bargaining table over patent issues. This new reality is being felt in the patent world, and will continue to be felt. The old days of the large east coast law firms and a few dominant (mostly east coast) companies setting patent policy are over. This is a sign of success: our economy is growing and changing, and patents continue to be important in many sectors. Public policy will and should change accordingly. That’s the way the system is supposed to work.

The downside of divisiveness is also worth considering. Do the pharma/biotech industries want to drive electronics/software companies into a political alliance with generic companies? Do pharma/biotech firms want to embrace the “patent trolls,” and risk associating themselves with entities seen as interested only in exploiting weaknesses in the system to make money than in actually pushing ahead with useful new technologies? (The lessons of the tort reform movement are relevant here: it may take too much time, but eventually those who use the legal system only to extort money from productive sectors of society will be shut down. Why would you want to ally yourself with players operating under a surefire expiration date?) These kinds of political bedfellows pose serious risks all around, in my view. Better to compromise over the details of patent reform than risk open warfare of this sort. That could be bad for everyone who believes the patent system is a fundamentally worthwhile institution.

Going Forward

To summarize: What worries me about Hal’s views is that they overemphasize the shadows currently cast over the patent system, and invite comparisons with an era that I think was very different. And to the extent Hal’s views exacerbate a split between powerful industry groups with interests in the patent system, they point us in a dangerous direction n.

I may not agree with my old friend Hal in this matter. But the point is that we do (I think) both share an important fundamental belief in the viability and continuing potential of the patent system. (That’s one of the many things he passed along to me in my early days in this field.) In my view, the Supreme Court shares this view too. We need to continue to work with the Court, and with each other, in the good faith belief that we are all engaged in a worthy common enterprise. What do you say, Hal?

Note: Robert Merges is the Wilson Sonsini Goodrich & Rosati Professor of Law and Technology and Director or the Berkeley Center for Law & Technology.

Based on the briefs filed in the Microsoft v. AT&T case, the Supreme Court faces a substantial risk of establishing logically indefensible precedent relating to computer software. The status of software in patent law is a fair subject of debate, but such policy decisions should not be based on folk science.

In the briefs now before the Court, software-and information generally-is characterized as an ethereal construct, barely capable of being controlled or understood. In its amicus brief, Autodesk calls information "meta-physical." The Software & Information Industry Association describes information as "purely intangible." According to Microsoft, information is "abstract," and is "floating in the ether." Information has been so denigrated that AT&T, who holds the patent on the software method relevant to the case, claims that "software is not 'information.'"

Colloquially speaking, information is hardly a new concept. Perhaps this is why the briefs assume it is reasonable to use a dichotomy pulled from Aristotelian philosophy: optical disk as "substance" versus computer program as "accident." But like physics, chemistry, and other topics of interest to the ancients, information has become a science, and it should be discussed as a science.

One prerequisite of science is the ability to isolate an object of study from the complicating influence of the environment. The first quantitative understanding of physics came only after natural philosophers turned their attention to the unimpeded motions of planets and pendulums, and the modern era of chemistry, it is argued, began when a French lawyer isolated the process of combustion. In biology, evolution was discovered only after the study of an isolated island ecosystem. Just as physics, chemistry, and biology were once "proto-sciences," so too was it difficult until recent decades to speak of a science of information. Information had always been bound up with books and thoughts, where its quantitative study would have been unimaginable. Digital computers, though, have given us both the ability and the motivation to study information in a nearly isolated form.

AT&T's denial that software is information is strange, and even disappointing, because it was at AT&T's own Bell Labs that the scientific study of information originated. See Wiki. In the intervening half-century, the physical properties of information have been studied thoroughly. Lawyers and the courts cannot be expected to understand this young science in detail, but they should not assume that there is nothing to understand.

One of the most profound results of the scientific study of information is that information, like other physical phenomena, is governed by the laws of thermodynamics. In particular, information has the properties of the thermodynamic quantity known as "entropy." See Wiki. These physical laws impose real limitations on the storage and manipulation of information, without regard to whether the information is embodied in magnetic dots, microscopic pits, punched cards, or even radio waves. Many of these laws and limitations are summarized in Michael P. Frank, "The Physical Limits of Computation," Computing in Science & Engineering (May/June 2002) at 16-26, available here.

The science of information need not be studied in depth to appreciate how uninformed many of the arguments to the Supreme Court have been. A comparison between computer software and "design information" (such as CAD/CAM codes, blueprints, instructions, or recipes) is repeated among the briefs. The desired inference, spelled out by amicus Amazon, is that there is "no scientific basis" for distinguishing between them. This inference, though, is incorrect. In the study of information, as in thermodynamics, there is a fundamental distinction between actions that are "reversible" and actions that are "irreversible." An irreversible process is one in which information is lost. For example, overwriting data in memory, as is done continually in a computer system, is not reversible. Copying a computer program from a master disk onto a blank portion of a hard drive, though, is reversible: even if the master disk is lost, its information can be restored using the information from the hard drive, and the hard drive can be restored to its original blank state.

Contrary to Amazon's arguments, then, computer software can be scientifically distinguished from design information, because using design information to produce a product is irreversible. A manufactured product cannot be changed back into CAD/CAM codes and raw materials. A computer with Windows installed, though, can be changed back into a computer with a blank disk and an uninstalled copy of Windows.

The amicus law professors have argued that compressed or encrypted information is "useless gibberish." Again, the science of information provides a helpful insight: compressing and encrypting data are both reversible processes. No relevant information is lost, since the data can be decompressed and decrypted to its original form.

Microsoft provides a nearly Biblical description of its Windows software as "abstract information" that "lacks physical existence" but to which Microsoft has "given a physical manifestation" as a "golden master." See John 1:14 ("And the Word was made flesh... and we beheld his glory."). How the first manifestation of Windows was pulled from the ether, though, is irrelevant. The issue before the Court relates only to what happened after Windows was originally compiled, and it is clear that any copies made thereafter were the mundane result of a reversible copying process.

Thus, the distinction in Federal Circuit case law between software, which can be a "component," and design information, which cannot, is a valid distinction. It can be seen as a question of whether supplying the alleged component is reversible: information is a component if and only if it can be added and removed in a substantially reversible way. This parallels our understanding of mechanical components: most parts can be both added to and removed from a mechanical device. Of course, gray areas would remain (compiling source code into object code, for example, is not entirely reversible), but they remain in other technologies as well.

Information has other properties that allow it to be easily understood as a "component." Like mechanical components, information can be traced to its source (to determine who is liable), and it can be counted (to measure damages). Indeed, information can be far easier to trace to its source than anything made of molecules. A U.S. manufacturer could deny that it exported any physical part of an accused product: a connector made overseas may look exactly like one made domestically. Microsoft, though, could hardly deny that it was the original source of the Windows program: the probability that someone would arrange so many megabytes of information the same way as Microsoft, without copying, are astronomically small.

Normally, a single copy of a program is provided on each disk or on each computer. This makes it easy to count the instances and the location of a software "component" to determine damages: the number that are made in the United States, the number that are exported, and the number that are made abroad. Even in other, more complicated scenarios, information theory provides ways of characterizing the number of copies that exist (using, for example, measures of "redundancy" or of "mutual information").

Without proper guidance, the Supreme Court is likely to perpetuate proto-scientific characterizations of software. Information, such as the information used to store and transmit software, has well-understood physical properties. Because of those properties, software can be logically and consistently treated as a "component" under the patent laws. Whether those properties imply that software merits patent protection is open to debate, but neither side in that debate should disregard the scientific understanding of information in the hope of a victory based on ignorance.

Note: Jeff Steck is a patent litigator at McDonnell Boehnen Hulbert & Berghoff in Chicago. He studied physics at the University of Chicago.

Declaratory judgment (DJ) actions are often used by potential defendants to obtain a declaration that a patent is invalid, unenforceable, or not infringed. Under Federal Circuit law, a licensee cannot challenge a patent without first breaching the license. The CAFC's reasoning was that a licensee in good standing feels no apprehension of suit since the license is essentially a settlement between the parties. Without an apprehension of suit, the DJ action would not rise to an actual controversy as required by the Constitution.

In a broadly worded opinion, the Supreme Court has scrapped the Federal Circuit's "reasonable-apprehension" test on declaratory judgment standing in favor of a rule that allows licensee's in good-standing to file DJ actions.

We hold that petitioner was not required, insofar as Article III is concerned, to break or terminate its 1997 license agreement before seeking a declaratory judgment in federal court that the underlying patent is invalid, unenforceable, or not infringed.

There are several things to note immediately:

Not Limited to Patents: This case at least extends to all licensing issues and likely to most contracts -- whether or not they involve patents or intellectual property.

Suggested Contractual Work-Around: Reading between the lines, the opinion may indicate that a contractual "prohibition against challenging the validity of the patents." may serve to block challenges by licensee's in good standing. Without the clause, however, the Court found no such prohibition:

To begin with, it is not clear where the prohibition against challenging the validity of the patents is to be found. It can hardly be implied from the mere promise to pay royalties on patents

Regarding apprehension of suit, the Opinion's footnote 11 is a complete divergence from common practice -- finding that a licensee who pays royalties either in fear of an injunctions or for fear of treble damages is being coerced in a way that creates an Article III case or controversy.

As you read this, keep in mind Michael Slonecker’s recent remark that “predictions are the musings of fools.” In late November, the Supreme Court heard oral arguments in KSR v. Teleflex — the case that will determine what constitutes a “nonobvious” invention. Then, last week, Justice Scalia briefly discussed the case at a meeting of technology business group and was quoted as saying: “I know how that one comes out, but I'm not going to tell you.” What does Scalia’s quote mean? Perhaps nothing, but it might mean that the court has already come to a unanimous consensus on the case.

The doctrine of nonobviousness is the cornerstone of American patent law. I was reminded today by Phil Swain that our nonobviousness statute, section 103(a) of the Patent Act, was drafted by Judge Giles Rich. Judge Rich is the most celebrated patent judge of this century. His statutory masterpiece eliminated the amorphous concept of a “flash of genius” and replaced it with our now ubiquitous objective standard of a person having ordinary skill in the art. In Graham v. John Deere, the Supreme Court reinforced 103(a) with its concept of case-by-case consideration of secondary indicia of nonobviousness as a way to avoid potential hindsight bias.

Later, as the Federal Circuit developed its own patent jurisprudence, the court hit upon the teaching-suggestion-motivation test as another anti-hindsight rule. That test requires evidence of some reason to combine various references that each teach part of an invention. Thus, if there is no evidenced reason to combine the references, then the invention will be deemed nonobvious. The test, known by acronymists as “TSM,” has been labeled as a poster-child for bad patent behavior. According to opponents of the test, the bright-line test makes patents too easy to obtain — resulting in a glut of patents covering trivial improvements. Those patents, in turn, hold-up industry research and greatly increase transaction costs and legal fees.

In KSR v. Teleflex, the Supreme Court is questioning whether the TSM test should exist as the sole determinant of obviousness. Question presented:

Whether the Federal Circuit has erred in holding that a claimed invention cannot be held ‘obvious’, and thus unpatentable under 35 U.S.C. § 103(a), in the absence of some proven “‘teaching, suggestion, or motivation’ that would have led a person of ordinary skill in the art to combine the relevant prior art teachings in the manner claimed.”

Until a few months ago, the common myth of the TSM test was that it required at least some hard evidence that provided at least a minimal reason to combine various prior art references. It is that myth that provided the impetus for Supreme Court review. In recent months, however, we have learned that the CAFC’s version of the test allows for evidence that is implicit, based on common knowledge, found generally in the prior art as a whole, based simply on the nature of the problem or simple logic, or concluded by experts. See Kahn, Dystar, Ormco, Alza. This jitterbug by the CAFC actually gives KSR much of what it wanted and smears the edges of the mythical bright-line rule. Justice Scalia picked up on transition during oral arguments — noting that the recent cases leave the test “meaningless. [The CAFC] essentially said ‘our test simply reduces to what [KSR seeks] in this litigation.’ . . . this is gobbledygook. It really is, it’s irrational.” Justice Alito had a similar concern with the “new” TSM test:

J. Alito: “But what is the difference between asking whether something is implicit in the, in the prior art and simply asking whether it would have been obvious to a person of ordinary skill in the art?:

As discussed earlier on Patently-O, all the major patent bar associations filed briefs that support the current TSM test. In a brilliant move, KSR neutralized those briefs by implying bias based on “the enormous fees that litigation of invalid patent claims can generate.” KSR Reply Brf. CJ Roberts appeared to buy-in to that analysis, joking that the filings “just indicate[] that this is profitable for the patent bar.” KSR Oral Arg.

One concern of the Court is whether modification of the obviousness doctrine would spoil long-settled rights. The Justices, however, mentioned on several occasions that over the past year, the CAFC may have already upset any settled rights.

Mr Goldstein [for Teleflex]: “[The CAFC has had decades to look at this to try and elaborate a standard.”J Breyer: “And it so quickly modified itself.”

Decision in February: Reports from the hearing noted that Justice who used the term “TSM” spoke with disdain and were highly critical of the test. Although oral arguments are always full of counterfactuals and wild theory testing, the level of criticism supports the conventional wisdom that the TSM test is likely to be eliminated as “the exclusive” test. Cases will rather be decided on a case-by-case basis using the standards of Graham v. John Deere. Already issued patents will still be given a presumption of validity, although it will be difficult for some courts to do this with a straight face. The new key to avoiding invalidity will be secondary indicia of nonobviousness. Look for a 9–0 decision in early February.

TSM is not Dead: Much of the oral argument was filled with an attempt to simply understand the TSM test, and to figure out what is meant by a “motivation.” If they cannot figure-out the test, they would likely completely trash-it as unworkable. Of course, by the time the opinion is penned, they will understand the current test and the test will not be scrapped as a whole. Rather, they will follow the Government’s suggestion that TSM continue to be used as a “valid means of proving obviousness.” In addition, however, flexibility will be added to allow for other ways of determining nonobviousness.

J Scalia: “And in the last year or so, after we granted cert in this case after these decades of thinking about [the obviousness doctrine, the CAFC] suddenly decides to polish it up.”

J. Breyer: “I’ve read it about 15 or 20 times now, I just don’t understand what is meant by the term ‘motivation.’”

Mr. Hungar [for US Gov’t]: “Construed as the sole means of proving obviousness the teaching suggestion motivation test is contrary to the Patent Act, irreconcilable with this Court's precedents and bad policy. It asks the wrong question and in cases like this one, it produces the wrong answer. It should be rejected and the judgment of the Court of Appeals should be reversed. . . . It’s just foreign to this Court’s precedents as a mandatory prerequisite for obviousness.”

Mr. Dabney [for KSR]: “[T]here is no legal regime that is a greater generator of patent litigation than the teaching suggestion motivation test that is urged by the respondent.” [DDC: Is this true?].

Cybor is the much reviled CAFC decision holding that the construction of patent claim language is a question of law that is reviewed de novo — without any regard to the lower court’s reasoning or ruling. The Cybor rule is believed by many to have dramatically increased uncertainty in patent litigation as well as likelihood of appeal. Importantly, the associated reversal rate also demoralizes district court judges who already often struggle with the technical and legal complexity of patent cases.

In Amgen, the appellate panel reviewed construction of the term “therapeutically effective amount” of erythropoietin and, in the process illustrated how Cybor gives the court a “capacity for arriving at its own idiosyncratic construction.” (Quoting Prof. Kevin Noonan). Here, the CAFC panel reversed the lower court’s construction based on its interpretation of the specification.

HMR’s request for rehearing en banc has been denied, but a contingent of six separate dissenting and concurring opinions show the internal conflict.

Chief Judge Michel, who also dissented from the original panel decision, led the charge against Cybor. “I have come to believe that reconsideration is appropriate and revision may be advisable.” CJ Michel, who was joined in the opinion by J Rader, cited four practical reasons for eliminating de novo review:

The disregard of time spent by district court judges in understanding the evidence and patent information;

The mind-numbing minutia of claim construction decisions faced by the court in “nearly every patent case.”

Claim construction, although similar to statutory construction is different for many reasons and is intertwined with facts that make the foundation for de novo review questionable. The arguments of CJ Michel are further highlighted by Judge Newman’s dissent.

J Newman focuses on how scientific and technological evidence serve as the backdrop for any claim construction and how claim construction should focus on the invention rather than following formalistic requirements that trip over every statement in a patent application. Finally, Newman argues that a Daubert framework is more appropriate for claim construction.

The Federal Circuit's position that patent interpretation requires more rigorous appellate review than other fact/law issues has not well withstood the test of experience. It is time to reopen the question and to rethink, en banc, the optimum approach to accuracy, consistency, and predictability in the resolution of patent disputes, with due attention to judicial structure, litigants' needs, and the national interest in invention and innovation. (Newman dissenting).

Judge Rader agreed with both CJ Michel and J Newman, but filed his own opinion. Rader gave some legal basis for reviewing Cybor — noting the Supreme Court’s opinion that claim construction "falls somewhere between a pristine legal standard and a simple historical fact." (Markman). Rader maintained his long-standing position that district courts should be given deference because they are better versed in the facts and the issues.

“Trial judges can spend hundreds of hours reading and rereading all kinds of source material, receiving tutorials on technology from leading scientists, formally questioning technical experts and testing their understanding against that of various experts, examining on site the operation of the principles of the claimed invention, and deliberating over the meaning of the claim language. If district judges are not satisfied with the proofs proffered by the parties, they are not bound to a prepared record but may compel additional presentations or even employ their own court-appointed expert." (Rader dissenting in Cybor).

Judge Moore: In what appears to be her first patent opinion, New CAFC Judge Moore also set her target on Cybor — stating that the court should “reconsider its position on deference.”

Judges Gajarsa, Linn, and Dyk all concurred with the decision not to rehear this particular case, but noted that “In an appropriate case we would be willing to reconsider limited aspects of the Cybor decision.” In particular, those three judges appear to believe that de novo is still appropriate when the intrinsic evidence (written description and prosecution history) on its face resolves “the question of claim interpretation.”

SUPREME COURT NEXT: This leaves us in the situation where at least eight of the twelve Federal Circuit judges believe that Cybor should be revisited if an “appropriate case” arises. This fractured decision is also ripe for Supreme Court review, and along with the Tamoxifen antitrust cases, are the two most likely to be granted certiorari in 2007.

Details: Judges Michel, Newman, Rader, Mayer, and Moore have all bluntly criticized Cybor. Judges Gajarsa, Linn, and Dyk have a more limited criticism.

Section 103 of the Patent Act focuses on “differences between the subject matter sought to be patented and the prior art.” In the 1976 Sakraida case, the Supreme Court held that simply aggregating old elements together does not pass the patentability test if the elements are each performing the same functions that they were already known to perform.

The “mere aggregation” test of Sakraida, however, has not been followed by the Court of Appeals for the Federal Circuit (CAFC). Instead, the CAFC’s approach has allowed mere aggregations to be patented so long as there is no evidence suggesting that the elements be combined.

The pending case of KSR v. Teleflex squarely addresses this debate. KSR recently filed reply brief closes the written arguments in this landmark case, and oral arguments are scheduled for November 28, 2006.

KSR’s attorneys, including GWU Professor John Duffy, argue strongly that 103(a) has been wrongly interpreted as merely a way to challenge patentability rather than a “condition of patentability” as the section is titled. Under the current suggestion test, claims “cannot be held invalid . . . no matter how trivial might be the differences” from the prior art unless evidence suggesting the difference is found in the art. As noted by Hal Wegner, the Court’s reaction to this argument could shift the strong presumptions of non-obviousness.

KSR has gone beyond its attack on the Federal Circuit suggestion/teaching/motivation test and raised as a further issue the point that it should win under a preponderance of the evidence standard for challenging patent validity.

In the process, KSR takes a shot at the AIPLA’s “balanced” position.

It is by no means clear why patent bar groups would have a systematic interest in a “balanced” standard of patentability, in view of the enormous fees that litigation of invalid patent claims can generate.

Background: Teleflex and its supporters have now filed their briefs in defense of the Federal Circuit’s methodology for determining whether a patent is “obvious.” [Copies of briefs are provided below]. The doctrine of nonobviousness is fundamental to our patent system. In order to be eligible for a patent an invention must be both novel and non-obvious. Novelty is generally narrowly applied to cases where the invention is identical to something already in the public domain. Obviousness, however, is a more difficult beast and is intended to ensure that patent rights are only granted to inventions that move us a significant distance past the prior art.

Obviousness has always been a “squishy” term, but over the past twenty-five years, the Court of Appeals for the Federal Circuit has developed a somewhat objective nonobviousness doctrine using a teaching/suggestion/motivation (TSM) test. According to the test, when various pieces of prior art each contain elements of an invention, the prior art can be combined together to invalidate a patent on the invention only when there is some motivation, suggestion, or teaching to combine the prior art. One problem with any obviousness test is hindsight bias. It is all-to-easy to look-back and assert that an invention would have been obvious. One purpose of the objective TSM test is to avoid this type of hindsight bias.

KSR has asked the Supreme Court to rethink that approach and take a fresh look at the obviousness standard for patentability. The petition questions whether obviousness should require any proof of some suggestion or motivation to combine prior art references.

Question Presented: Whether the Federal Circuit erred in holding that a claimed invention cannot be held "obvious," and thus unpatentable under 35 U.S.C. sec. 103(a), in the absence of some proven "'teaching, suggestion or motivation' that would have led a person of ordinary skill in the art to combine the relevant prior art teachings in the manner claimed"?

Interestingly, the Supreme Court has not heard an obviousness since well before the founding of the Federal Circuit. In that case (Sakraida 1976), the Court held that a combination which only unites old elements with no change in their respective functions is precluded from patentability under 103(a). Under the Sakraida standard, the Teleflex patent is arguably obvious. In an article several years ago, Professor John Duffy identified this obviousness issue as one that should attract the Supreme Court’s attention.

[The Federal Circuit’s suggestion] test, which tends to make even seemingly trivial developments patentable, is entirely the Federal Circuit’s product. It has no basis in the Supreme Court’s case law and may, in fact, be inconsistent with the Court’s most recent pronouncement on the subject (though that precedent is now more than a quarter century old).

Duffy, The Festo Decision and the Return of the Supreme Court to the Bar of Patents, 2002 S.Ct. Rev. 273, 340-41 (2003). Now, Duffy, a former clerk of Justice Scalia, is part of the KSR team that is trying to change the rule of law. The KSR case itself concerns a patent covering a gas pedal for an automobile. KSR makes pedals for GM & Chevy trucks and was sued for infringement of the Teleflex patent.

Non-Rigid Test: Respondent defines the suggestion test as a “flexible [test that] looks to any available indication that a practitioner in the art would have had some reason to select the elements of the invention from among the prior art and combine them in the manner claimed by the invention.” Relying heavily on the CAFC’s very recent obviousness pronouncements of Dystar and Alza, the brief points out that a suggestion does not need to be found in prior art, but rather can be implicit in the nature of the problem, customer demand, similarity between references, knowledge of PHOSITA, wide knowledge of value of feature to be combined, etc. [DDC: Query whether the broad application of implicit suggestions would constructively eliminate the rule.]

The suggestion test can be contrasted with the “synergy” test proposed by petitioner and the “extraordinary level of innovation” test from the Solicitor General. Those approaches essentially mirror the pre-103 requirement of an “invention.” According to Judge Rich, “The first policy decision underlying Section 103 was to cut loose altogether from the century-old term ‘invention.’”

Intellectual Property Owners Association (IPO) in Support of Respondent:

The IPO is an organizatoin of intellectual property owners. MBHB (where I am of counsel) filed the brief on behalf of IPO. IPO’s brief supports the motivation requirement as an objective but flexible and practical approach to the obviousness problem. IPO hits on the hindsight problem:

[The test must rely on] objective evidence, not mere unsupported opinion or argument.Otherwise, the inevitable use of hindsight will tend to render meritorious inventions "obvious" by using the inventor’s own teachings as a roadmap to piece together prior art references in ways that would not have been obvious at the time of the invention.

IPO also takes-issue with any “synergy” requirement. Synergy occurs when the "the interaction of elements that when combined produce a total effect that is greater than the sum of the individual elements." There are many patent-worthy inventions, however, that lack true synergy. In addition, the Solicitor General’s proposed "extraordinary level of innovation" requirement goes too far. “Nothing in the patent statute suggests that patents should only be awarded to Nobel laureates.”

Paul Berghoff, Jeremy Noe, and Aaron Barkoff (of OrangeBookBlog) are on the brief.

American Intellectual Property Law Association (AIPLA) in Support of Respondent:

AIPLA’s brief is a fun read — it starts off with quotes from Billy Wilder and King Solomon, both of which give us pause on the question of hindsight.

What has been is what will be,and what has been done is what will be done;there is nothing new under the sun.

According to AIPLA, King Solomon wasn’t so wise — perhaps because his vision of the past was colored by hindsight. The CAFC’s test of obviousness is useful because it helps avoid hindsight.

TSM is a well-established, thoughtfully-analytic framework that provides certainty and uniformity in obviousness determinations while allowing proper flexibility. By requiring a showing of why someone of ordinary skill in the relevant art would think the invention obvious, it functions as a critical evidentiary device that prevents arbitrary decisions driven by hindsight.

As is typical of opposition briefs, the AIPLA correctly notes that the CAFC’s suggestion test does not require that the suggestion be explicit or written.

I can concieve of a strong [and thus far unstated] argument that it would be sensible to require that the suggestion be written and explicit. At this point in history, we have more people writing than ever before and those people are each writing more than earlier writers. At the same time, search costs are dropping dramatically and will continue to drop. In this scenario, why would we need to allow the evidentiary nightmare of giving weight to previously unstated suggestions to find an invention obvious?

Professor Thomas Field of Franklin Pierce in Support of Respondent:

Professor Field looks at the CAFC and its role in the patent process. Unlike its predecesor CCPA, the CAFC hears both administrative patentability and litigation based cases. That means that the CAFC must “confront the consequences of unwaranted grants.”

If the problem is the grant of too-many patents, the CAFC has little to say there because the court has no role in granting patents except to occasionally rule that the BPAI’s bases for rejection are unsupported.

Pre- and post-grant opposition proceedings may be the answer, but those decisions are for Congress.

ABA in Support of Respondent:

ABA amicus briefs are always difficult to obtain becauase they need the support of both the IP Section and the entire ABA House of Delegates. Here, the way to consensus was not to argue that the TSM test is the best test, but rather to note that it is useful, objective, and deeply rooted in the Supreme Court’s John Deere jurisprudence. In addition, the test is well settled, and messing with the test would have a far-reaching and complex impact on the economy and state of innovation.

If some elusive method not based on evidence were to be substituted for the present inquiry, hundreds of thousands of patents granted under the teaching-suggestion-motivation methodology would be immediately placed under a cloud.

Harold Milton in Support of Respondent:

Harold Milton drafted the claims being asserted by Teleflex and has filed a very interesting brief in support of Teleflex. Interesting because he begins with a statement that the suggestion test is illusory, or at least a misnomer. There is no requirement that there be any specific statement of suggestion in the prior art. Nonetheless, the test is important to maintain an “objective standard of patentability” and “consistent evaluation.” It also prevents chaos:

Without an objective standard, chaos would be multiplied across thousands of patent examiners, judges, juries, attorneys, etc. and would result in inconsistent decisions on patentability.

According to Milton, the Court should reject the suggestion test and stick to its prior decisions that obvious is found when there is a “mere selection of prior art elements combined to perform the identical function as they did separately in the prior art.”

Lee Thomason in Support of Respondent:

Thomason is a Kentucky-based patent attorney. One interesting aspect of his argument involves the law/equity distinction. According to Thomason, challenges to validity are equitable in their origins as evidenced both by the recited equitable factors of 103(a) (“as a whole”) and by Blackstone’s recitation of the writ fo scire facias. As such, any changes to the rule should be to review obviousness decisions “according to the standard applied to equitable rulings.” Equitable review requires a full discussion of the record and results in more predictability.

Catherine Lacavera is an attorney admitted to practice in New York, Massachusetts, and before the Supreme Court of the United States. She has litigated patent cases in Federal Courts, drafted patent applications, passed the PTO registration examination, and now is an attorney for Google in California. Unfortunately for Ms. Lacavera, she is Canadian and does not hold a green card. (Lacavera holds a non-immigrant work visa).

Under USPTO rules, Lacavera’s “nonimmigrant status is ‘inconsistent’ with [PTO] registration because [the nonimmigrant status] is limited in time and scope whereas registration is not so limited.” The CAFC agreed with the PTO in denying Lacavera her full registration, and Lacavera has now petitioned the Supreme Court for a writ of certiorari.

The petition presents three questions:

1. Does the USPTO . . . have the authority to refuse to register nonimmigrant aliens as patent practitioners solely on the basis of their immigration status, where the nonimmigrant aliens are otherwise qualified for registration and authorized by United States Citizenship and Immigration Services ("USCIS") to practice as patent practitioners in the United States?

2. Did the Federal Circuit, in upholding a USPTO rule denying registration to nonimmigrant aliens, inappropriately apply only a "rational review" standard where it should have applied at least "heightened scrutiny," if not "strict scrutiny," to a federal agency rule that discriminates against nonimmigrant aliens without serving any special national interest?

3. Do bar admission rules, such as the state rule that is before this Court in Leclerc v. Webb and Wallace v. Calogero, and the federal rule that is the basis of this case, that deny aliens lawfully within the United States access to employment opportunities based on the duration and employment restrictions of their current visas, violate the aliens' rights to "equal protection" in the absence of any evidence that the visa restrictions relate to valid state or federal interests in ensuring competency of practitioners?

On the issue of equal protection, Lacavera argues that the CAFC “set a dangerous precedent” by denying equal protection because “the USPTO treats all nonimmigrant alien's the same by refusing to register any of them. Equal discrimination is not equal protection.”

Interestingly, because she is Canadian and a U.S. attorney, Lacavera is the perfect test case. If she were residing in Canada, the PTO would permit her registration even without any U.S. immigration status. Additionally, her visa specifically authorizes her to practice as a patent attorney in the U.S.

The Coalition of Service Industries has filed a brief in support of the petition — arguing that we should open our doors to legally admitted temporary residents as a bargaining chip for reciprocity.

The U.S. has for example asked many other nations not to discriminate against American lawyers who provide or wish to provide legal services in foreign countries. Because reciprocity plays a large role in trade negotiations, the USPTO rule adversely affects our legal community in the several important trade negotiations that are currently underway or planned.

The Supreme Court has expressed its interest in the case — requesting that the government file a responsive brief by November 1, 2006.

Notes:

Interestingly, soon after Lacavera filed her petition for certiorari, her application for permanent residence was granted. The PTO may end up mooting this issue by granting her full registration.

The DOJ and PTO have given their solid support to Microsoft’s petition for certiorari in its battle over transnational patent infringement. This support makes grant of the petition highly likely.

This case, like Eolas and Pellegrini before, questions the scope of Section 271(f) of the Patent Act. That statute allows a U.S. patentee to collect damages for foreign sales of a patented invention based on the export of one or more of its components from the U.S. Recently, the CAFC has expanded the common interpretation of the statute to include the export of software code (AT&T, Eolas) as well as to the export of elements used in a patented method (Union Carbide). In a case that is difficult to square with AT&T or Eolas, the court held that the “component” does not apply to plans or instructions.

In this case, Microsoft’s software code was generated in the U.S. and then shipped abroad where copies were then generated and distributed. AT&T claims (and courts have thus far agreed) that sales of those foreign copies infringe the U.S. patent and create liability. The chart below gives my loose graphical interpretation of the events.

If it stands, this case could have far-reaching effects in the fields of biotechnology (DNA/cell replication) as well as foreign piracy (shipping product from the U.S. to reverse engineer and copy in a foreign country).

From a business perspective, this interpretation of the statute gives business executives another reason to send software jobs overseas. If the component was not exported from the U.S., there will be no damages under 271(f).

In their brief supporting the petition, Daryl Joseffer and the DOJ crew agree that software can be a component of a patented invention. They argue, however, that the foreign replicas do not create liability under the act because the replicas themselves were not supplied from the United States (as is required by the statute). According to the brief, the lower court’s interpretation “improperly extends United States patent law to foreign markets and puts United States software companies at a competitive disadvantage vis-a-vis their foreign competitors in foreign markets.”

The Government argues that the extraterritorial nature of U.S. patents should be narrowly construed and that if someone wants rights to stop foreign infringement, then they should get foreign patents.

Respondent’s remedy lies in obtaining and enforcing foreign patents, not in attempting to extend United States patent law to overseas activities.

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